Based on the local minimum wage standard and China Dynamic Monitoring Data of Floating Population, this paper calculates the interregional population mobility matrix and finds that the race-to-top competition of minimum wage leads to the spatial mobility of labor force. The greater the minimum wage gap between cities, the greater the inflow of people from the low-standard area to the high-standard area. A rise in the minimum wage in both places of origin and destination will exert a pulling effect on labor force, and the higher the standard, the greater the pulling effect. This effect diminishes as the distance between the two regions increases. These findings remain robust after replacing the explained variables with net population mobility or the demographic structure of the inflowing and outflowing regions, replacing the city pair cross-section data in 2017 with province pair panel data during 2011 and 2017, excluding the interference of sample representativeness, replacing the OLS model with a conditional logit model, and excluding the interference of confounding factors such as Hukou threshold, i.e. household registration threshold, and dialect culture. The reason mainly lies in that: The rise of minimum wage from 2010 to 2016 can significantly increase the income of the floating population below the 85 percentiles of the income distribution, which has guided wage growth for most of the floating population. This mechanism also explains why the pulling effect is significant for all groups while the impact of the minimum wage gap is stronger for people with low education, low income and rural Hukou. Further study on the allocation of labor factors shows that while the minimum wage promotes the upgrading of local industries through “competition for people”, it also exerts a negative spillover effect on neighboring areas, thus increases the degree of labor misallocation in a larger area, while not having a significant impact on capital misallocation. When there is a policy objective to raise the minimum wage in neighbouring areas, local governments have to follow suit as a response to preserve the local labor force, because an increase in the minimum wage will promote innovation and upgrading, while not doing so will only result in greater losses. This also determines the inertia of upward minimum wage competition among local governments in China. This type of labor mismatch is greatly weakened in areas where minimum wage competition is weak and mitigated in areas with a high degree of marketisation, a low share of state-owned enterprises, low government deficits, high foreign investment and a low share of second industries. Therefore, local governments should ensure that minimum wage increases are in line with local economic conditions, labor factor endowments and the affordability of enterprises, and eliminate excessive government competition brought about by local protectionism, in order to help to resolve the structural mismatch between inflowing labor supply and inflowing labor demand. This paper provides a new explanation for the positive and negative divergence of the employment effect of minimum wage from the perspective of population mobility, and also provides a new perspective on minimum wage competition for the spatial allocation of labor force, which has implications for the formulation of the optimal minimum wage standard in various places.
Does the Minimum Wage Standard Affect the Spatial Allocation of Labor Force? A Perspective of Local Government Competition
Journal of Finance and Economics Vol. 48, Issue 10, pp. 108 - 122 (2022) DOI:10.16538/j.cnki.jfe.20220615.301
Cite this article
Chen Yongli, Li Jing, Wei Xiahai. Does the Minimum Wage Standard Affect the Spatial Allocation of Labor Force? A Perspective of Local Government Competition[J]. Journal of Finance and Economics, 2022, 48(10): 108-122.
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